- The USD/CHF faces pressure as the US dollar weakens, dragged by a drop in US yields.
- The yields of the US Treasury bonds can recover with the improvement of global commercial feeling and the decrease in the probabilities of imminent rates cuts by the Fed.
- The president of the SNB, Martin Schlegel, said that the Central Bank is open to more rates cuts if economic conditions justify it.
The USD/ChF fell during the Asian operations on Friday, around 0.8310 after registering profits in the two previous sessions. The torque was pressed as the US dollar (USD) was softened, affected by the fall in the yield bond bonds of the US Treasury at the time of writing, the yields at 2 years already 10 years were at 4.36% and 3.86%, respectively.
However, US yields had previously found support thanks to the improvement of global commercial feeling and the reduction of expectations of interest rate cuts by the Federal Reserve (Fed) in the short term. The market confidence was promoted after President Donald Trump announced a preliminary commercial agreement with the United Kingdom, setting the first agreement since the US imposed broad tariffs last month.
Attention now focuses on preliminary commercial discussions between the US and China scheduled for this weekend in Switzerland. However, both parties have minimized the probability of significant advance. Trump has maintained a firm posture about China, underlined by the appointment of a new envoy to Beijing. Although conversations about possible tariff exemptions are ongoing, Trump emphasized that USA “is not looking for so many exemptions.”
Meanwhile, the Chinese Vice Chancellor Hua Chunying reaffirmed China’s resilience, stating that the country has “full confidence” in managing commercial tensions with the US and the ability to face the challenges in progress.
In the Swiss front, the expectations of more interest rate cuts by the Swiss National Bank (SNB) intensified after President Martin Schlegel suggested that the Central Bank is ready to cut rates even more if necessary. Schlegel also hinted at the possible return of zero or negative rates amid the continuous economic uncertainty.
The Swiss inflation data added to the moderate perspective, with the April consumer price index showing null year -on -year growth and a strong drop in underlying inflation, increasing the speculations of a rate cut at the SNB meeting of June 19.
Franco Swiss faqs
The Swiss Franco (CHF) is the official currency of Switzerland. It is among the ten most negotiated coins worldwide, reaching volumes that far exceed the size of the Swiss economy. Its value is determined by the general feeling of the market, the country’s economic health or the measures taken by the Swiss National Bank (SNB), among other factors. Between 2011 and 2015, the Swiss Franco was linked to the euro (EUR). The link was eliminated abruptly, which resulted in an increase of more than 20% in the value of the Franco, which caused a turbulence in the markets. Although the link is no longer in force, the fate of the Swiss Franco tends to be highly correlated with that of the euro due to the high dependence of the Swiss economy of neighboring Eurozone.
The Swiss Franco (CHF) is considered a safe shelter asset, or a currency that investors tend to buy in times in markets. This is due to the perception of Switzerland in the world: a stable economy, a strong export sector, great reserves of the Central Bank or a long -standing political position towards neutrality in global conflicts make the country’s currency a good option for investors fleeing risks. It is likely that turbulent times strengthen the value of the CHF compared to other currencies that are considered more risky to invest.
The Swiss National Bank (BNS) meets four times a year (once each quarter, less than other important central banks) to decide on monetary policy. The bank aspires to an annual inflation rate of less than 2%. When inflation exceeds the objective or it is expected that it will be overcome in the predictable future, the bank will try to control the growth of prices raising its type of reference. The highest interest rates are usually positive for the Swiss Franco (CHF), since they lead to greater returns, which makes the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken the CHF.
Macroeconomic data published in Switzerland are fundamental to evaluate the state of the economy and can affect the assessment of the Swiss Franco (CHF). The Swiss economy is stable in general terms, but any sudden change in economic growth, inflation, current account or foreign exchange reserves have the potential to trigger movements in the CHF. In general, high economic growth, low unemployment and a high level of trust are good for Chf. On the contrary, if the economic data suggests to a weakening of the impulse, the CHF is likely to depreciate.
As a small and open economy, Switzerland depends largely on the health of the neighboring economies of the Eurozone. The European Union as a whole is the main economic partner of Switzerland and a key political ally, so the stability of macroeconomic and monetary policy in the Eurozone is essential for Switzerland and, therefore, for the Swiss Franco (CHF). With such dependence, some models suggest that the correlation between the fate of the euro (EUR) and the Swiss Franco is greater than 90%, or almost perfect.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
